Asure Software’s 16.7% return over the past six months has outpaced the S&P 500 by 13.6%, and its stock price has climbed to $9.38 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Asure Software, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Asure Software Not Exciting?
Despite the momentum, we don't have much confidence in Asure Software. Here are three reasons there are better opportunities than ASUR and a stock we'd rather own.
1. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Asure Software’s billings came in at $43.49 million in Q4, and over the last four quarters, its year-on-year growth averaged 14.2%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Operating Margin Rising, Profits Up
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Over the last two years, Asure Software’s expanding sales gave it operating leverage as its margin rose by 3 percentage points. Its operating margin for the trailing 12 months was negative 6%, and it must keep making strides to one day reach sustainable profitability.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Asure Software has shown weak cash profitability relative to peers over the last year, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 5.5%, below what we’d expect for a software business.
Final Judgment
Asure Software isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 1.7× forward price-to-sales (or $9.38 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
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